Archive for January, 2011

You would be crazy to own Yahoo (YHOO) stock…

By: ispeculatornew | Date posted: 01.31.2011 (5:00 am)

Yahoo (YHOO), the company that once defined the internet is quickly being left behind. I have been very vocal in my dislike of how things have been going for Yahoo and other similar companies such as AOL (AOL) and IAC Interactive (IACI). But Yahoo clearly remains the top stock in my “hate list”. Some stocks such as Blue Nile (NILE) are being valued too high and I have shorted them quite often. But in Yahoo’s (YHOO) case, the stock looks like it could be stuck in the same range for a very very long time. I have been feeling like this for some time but listening to the earnings call last week gave me even more reasons to doubt the company currently led by CEO Carol Bartz. To be fair, I’m not saying that I could do better but I did come up with some things I would do if I were and in any case, finding a capable CEO should not be the most difficult task in the world although you could argue that it is already too late.

Here are the top reasons why I do not like Yahoo’s stock:

Yahoo cannot admit that things are not going well

In their earnings call, Yahoo did say that it was gaining momentum and Merrill Lynch analyst Justin Post was spot on when he asked about that. He asked how Yahoo was gaining momentum when you consider that revenues have dropped by double digits for two straight years. It’s fairly impressive for any company to do that poorly but doing this in the tech world is impressive, obviously not in a good way. Even when confronted to such a fact, Carol Bartz defended herself, saying things were on course, etc. It could be all about talk but I would say that Yahoo’s inaction in the past 2 years speaks volumes as well. I remember hearing AOL (AOL) CEO Tim Armstrong discussing a similar situation and he seemed to be very open to discuss the drop in revenues and his plan for the turnaround. That does not seem to be the case at Yahoo.

It’s top producing assets are those that are independently managed

Many Yahoo bulls point to the fact that the company does not have much space to drop or downside risk because its cash position and its stakes in Alibaba and Yahoo Japan are almost worth the entire company. It is as if everything else in the company was almost worthless. It is true in some ways. But don’t you think it’s very worrying that the only assets that are gaining ground for Yahoo are those that are not managed by Carol Bartz and co? I would agree that the stock will not fall much below $10 for some time but I still think there is so little risk that revenues will spike that shorting the stock remains a very attractive position.

It is ignoring the truth regarding its position as a display advertising leader

It’s not the first time it has happened and will not be the last. Yahoo dissing Facebook and basically saying that it remains the display ad leader. In a way, it is true because more display ad dollars are spent on Yahoo than anywhere else. But Facebook is now by far the website that is attracting the most traffic and is very quickly gaining on Yahoo. It has the most traffic, the most pageviews and very limited focus on display advertising for the moment. On the call, Carol Bartz discussed how Facebook, Google and others gaining so much advertising clients was a good thing for Yahoo because it meant that new advertisers were moving to the web and could potentially become future Yahoo advertisers. Maybe somewhat true but I cannot imagine NBC being happy about FOX’s advertising success….

The search alliance with Microsoft is, as expected, turning out as a win for Yahoo

Bartz and her team acknowledged that revenues were not on par with expectations, mostly because the click through ratio was not as high as expected. Yahoo is losing search market share every month or so and that will have huge impact on its search revenues. The three way race is now two ways and you will rarely hear about users switching to Yahoo because an increasing number of users know that they can find the same, better presented results at Microsoft’s Bing.

Executives continue to leave Yahoo

It’s always a great way to see how things are going isn’t it? Talent retention in Silicon Valley is now one of the top priorities and every time you will hear about movements that involve Yahoo, it is because of big profile names that are leaving the company. Are they leaving for lack of opportunities? Lack of leadership? Because their stock options are worthless? Because the possibilities of a turnaround seem slim from the inside? No matter which of these reasons is the valid one, it does seem clear that all of these departures are a very bad sign for shareholders.

Almost no talk about mobile strategies

While Google, Apple, Microsoft and others battle for their space in mobile, Yahoo seems to forget that it is getting completely lost in this new space. The big area of growth got not more than a few mentions on the earnings call as Yahoo admitted that it was getting very little market share because Google’s Android promotes Google search heavily (while Apple promotes its own products on the Iphone & Ipad).  When will Yahoo wake up? It is probably already too late and those 2 or 3 apps are not going to save the day.

So is Yahoo toast?

For now, I don’t see any reason to not consider Yahoo as toast and a great short… what about you?

Disclosure: No positions on Yahoo (YHOO) but you can expect a short position soon!

Intelligent Speculator is NOT an oxymoron

By: ispeculatornew | Date posted: 01.28.2011 (5:00 am)

During the most recent holidays, we published what turned out to be a very popular series regarding things I would do if I were at the head of different technology companies among those that I follow on this blog. By far the most controversial among those posts was the one about what I would do if I were Apple (AAPL) CEO Steve Jobs for a year. It’s not a bit surprise, Apple fans are very passionate about the company, its brands and everything else about Apple. I would know, I am part of those fans. That being said, I still think it turned out to be a very interesting post and the comments that followed will certainly develop into many future posts over time.

One of the comments that I felt the need to answer to is that IntelligentSpeculator, the name of this blog, is an oxymoron. I’m not sure if many others believe the same thing but I would argue that idea vehemently. Why? There are many different definitions of “speculator”. In general, in investing terms, I would personally say that you are either a hedger or a speculator. That is also how many future exchanges classify investors. Are you buying assets in order to hedge something else or to gain new exposures? For most of us, it is the former.

Others would say that a speculator is someone that takes risk in order to make profits. No matter how much risk is involved, most investors are speculating.

That being said, my main argument would be that among all of those that take risks, traders can have many different ways of finding their investment ideas.. Some simply hear from their neighbor, a friend, a family member or on tv about a company and will blindly buy it looking for the next Berkshire Hathaway. Others will do in depth research looking for the best opportunities. I would like to think that this blog is more about the latter and thus I would personally be thrilled to be called an “intelligent speculator”.

What about you? Do you think it’s impossible be smart or intelligent when doing speculation? Or that somehow all speculators are stupid? Or do you simply have a different definition of speculators? I personally don’t see anything wrong about taking risks as long as the expected profit is good enough to compensate for that risk. Do you agree?

Are we getting ready for dot com crash v2.0?

By: ispeculatornew | Date posted: 01.27.2011 (5:00 am)

It is a familiar feeling isn’t it? Investors rushing in to get stakes into the next Google (GOOG) or the next Microsoft (MSFT). It seems like these companies can only go up! Are they profitable? Absolutely and that is already more than what could be said for many of the dot com companies from the 2000 dot com bubble. Companies like or had attracted huge valuations despite a poor (at best) plan to profitability. It didn’t matter after all because if you didn’t buy today, someone else would and tomorrow’s price would be much more expensive.

In some ways, that is how it feels today. Google was deemed to be crazy by many to have offered $6 billion for Groupon just a few weeks ago. Never mind the fact that the company ended up refusing the offer and is now preparing an IPO at a rumored $15 billion valuation. Did that company just double its profit estimates in a matter of weeks? And how about LinkedIn which also doubed its valuation in just few weeks. Better buy now because getting in the game at the end of February will probably be much more expensive. Right?

Different type of crash?

Wall Street can sometimes be a bit on the dumb side but they usually do not make the exact same mistakes and this one is no exception, as there are significant differences between what is going on and the 2000 dot com bubble.

Not public: While most of the companies that ended up crashing in 2000 were public ones, the current ones are usually not traded on stock exchanges but rather through private and exclusive brokers such as SecondMarket which let high net worth individuals and companies only get involved as the traded companies have not yet reached the level at which they would be publicly traded, would publish earnings and other documents to the S.E.C.

Most of these companies are profitable: Companies like Facebook, LinkedIn and Groupon are making revenues and even earnings unlike most of the dot com failures

Less transparency: Since these transactions are taking place off markets, a lot of deals are taking place behind curtains and it’s not quite clear who is buying & selling, and what prices

Buyers rushing in

When Goldman Sachs initially announced it would be able to offer its clients a stake in Facebook at a $50 billion valuation, it was flooded with orders from both wealthy individuals and investment companies.  Companies like Digital Sky Technologies are being admired not for getting in at cheap valuations but simply because they have been able to get stakes in some of the more valuable dot come companies such as Facebook and Twitter and right now, getting stakes seems like the only important aspect. Who cares about the price being paid? It’s about getting a stake, no more, no less. There is limited supply as the float of these companies is very limited. Most of the shares being sold are owned by early employees who want to get cash instead of stakes in a company that can seemingly only go higher… does that remind you of a familiar story? Mark Cuban.

No sense of valuation

Compared to the companies that made headlines in the first dot com bubble, these companies are gold. Not only do they have solid business plans but they are actually already making profits which is already much more than the ones from the early 2000s. That being said, there has to be someone that looks at valuations. This blog has been more than happy to call Facebook the best investment opportunity out there but if the valuation keeps going up by 20% every few months, that opportunity will no longer exist. Was Groupon a good buy for Google at $6 billion? Absolutely. But investing at a $15 billion valuation a few weeks later seems exaggerated. Since these companies are mostly private, few public numbers exist which has been making investors buy the name rather than a good deal. Are some of them good deals? Absolutely. But why is everyone throwing money at these companies without even checking twice?

What to do?

It’s difficult to determine if there is truly a bubble and even more of a challenge to time the possible collapse (talk to any Open Table investor). But I would advise against blindly buying all of these big names.

Disclosure: No positions on any of these names

The Ultimate Objective for your passive income portfolio

By: ispeculatornew | Date posted: 01.26.2011 (6:00 am)

We have discussed passive income portfolio investing before, its importance and how it can lead to a superior lifestyle. By now, you have hopefully started building that portfolio, especially since you can start one with as little as $5000! I wanted to reflect a bit on the idea behind a passive income portfolio… let me know your thoughts

The goals of a passive income investor

It might sound obvious but the ideal is not to be able to pay for your retirement, the foal is more ambitious. In an ideal world, the income generated by that portfolio would be enough to be self-sustaining. What is the distinction?

When financial planners go into the numbers of what you need for your retirement and how to get there, one of the variables that they use is “expected lifetime”. Yes, that is exactly what you think. They are trying to help you save just enough money to make it until your death. Sure, they include a little cushion but there is still a major difference. Why? Because if you are expected to live until 85 years old, as you get older, that estimate might change, which would also impact how much income you can live with during your retirement. One thing you want to avoid all cost is over-living your budget.

So what is it that I aspire to?

I want a portfolio that can help me keep the same level of income, even if I live for the next 100 years. Sounds impossible? It’s not. It’s actually quite simple. You simply need your portfolio to do 2 things:

-Generate enough income to live off of without touching your capital
-Have the capital increase by the inflation rate

Why is the inflation rate crucial? Imagine that you have a $1,000,000 portfolio, which used to be considered ideal but is now insufficient for many of us. If you are able to generate 4.5% of income, which seems reasonable, you would be receiving $45,000 per year. But how much will you be able to do with $45,000 in 20 years? Not a whole lot. This means that you want your $1,000,000 to increase over time in order to have that 4.5% still give you the same lifestyle even when prices increase.

How to get it done?

There are many different ways and using inflation hedges such as TIP’s or gold is certainly one such way but I think the critical part here is to account for inflation when you make your calculations. It will take away any stress about over living your portfolio. In this case, if you estimate that inflation will be 2% on average, and that you can get 5% of total return, that means you will actually need to be able to live off of 3% of your portfolio every year. If you want to receive $50,000 per year, that means closer to $2 million than $1 million. There are many ways to get it done but I just think it’s critical to know what you need and plan in function of that.

If you’re not going to make it

Do not give up hope however, there are other ways to get the same result and one of those ways that is used by many is buying an annuity.  When you buy such a financial product, you basically buy a stream of cash flows that will be paid out every year until you die. Many different conditions can be added and that stream can be adjusted for inflation, can pay a sum at your death, etc. I will discuss annuitites later on but I think it’s a good way to reduce uncertainty about your future income if you know that your retirement will come up short.

If your passive income portfolio is generating enough

If you succeed in making a portfolio that can both pay you enough passive income and account for inflation, you will have a very happy problem once you reach retirement. You will have a passive income portfolio that you will be able to give away to a loved one or to charity. I certainly hope and plan to be able to do that once I move on to another life and hopefully many of you can do the same…

What are your big plans for your passive income portfolio?

Reading through financial statements – How to judge a company and its future dividend

By: ispeculatornew | Date posted: 01.25.2011 (5:00 am)

A few months ago, we did a survey for all of our newsletter members (it’s free to join) for subjects that they wanted to have discussed. Many of those are being discussed in our weekly newsletter but we are inserting some of them on the blog as well. In that spirit, we wanted to answer a question about finding solid dividend companies by looking at the financial statements of companies. It’s a complex question of course and each investor would probably have slightly different ways of looking at it. I did discuss the 20 things that I look for in dividend stocks and that certainly gives a hint but I will try to give an even clearer picture in this post. There is no perfect method though and I am more than happy to hear additional ideas or to discuss future ones.

In my opinion, what I look for in a company at the most simple form is:

1-Existing dividend yield of at least 1-2%
2-Moderate to high and sustained dividend growth

The first point is not the most important and it’s usually the easiest to verify. You can simply take a look at the current payout and determine if it fits the overall criteria.

The more difficult part is the 2nd statement. Let’s take a look at each part of the section:

-Moderate to high dividend growth: Personally, I like to see a stock that can increase its payout by 5% or so every year for the medium to long term future. How can a company increase its dividend payout? Let’s take a quick look:

Dividend = Earnings x Payout Ratio

In order to increase a dividend yield, a company must be able to increase one or both of these. Because of that the payout ratio is important. A company that is paying over 100% of its earnings in dividends will not be able to sustain this unless its earnings increase. It is far from ideal. As well, while a company could be increasing its dividend through an increased payout ratio, it’s difficult to do that for a long period of time. Therefore, the key component is earnings growth.

Earnings = Revenues x Profit Margin

Obviously, a company can increase profits over time by improving its margins. That can be done in many different ways such as increasing prices, diminishing costs through productivity gains, etc. However, like the payout ratio, it can only be done for so long. Increasing margins is important but it’s not sustainable over 20 years.

Therefore, what is the most critical in my opinion when looking at a long term dividend stock? Revenues growth!! Take a look at a company like Proctor & Gamble (PG) which has increased dividends for a very long time, and how its revenues also increased.

The two are very much tied up together as you would expect.

So in my opinion, the most important number is revenues growth. It’s important to understand:

-Where do revenues come from?
-How much competition exists?
-Is the market still growing?
-Do you expect the company to maintain its growth over 5, 10 or even 20 years?

All of these questions are critical and the answers will not necessarily be found in the the financial statements but you should be able to get a much better idea by listening to an earnings call or reading an annual report. Numbers that are of importance would also include the debt ratio (companies with a lot of debt will have more long term problems to keep up the growth) but also market share, payout ratio, etc.You also want a company that is reinvesting for the long term through asset purchases, R&D, hiring, etc.

Apple (AAPL), Google (GOOG), Microsoft (MSFT) investors, you should read this…

By: ispeculatornew | Date posted: 01.24.2011 (5:00 am)

A few weeks ago I read a fascinating article posted on John Mauldin’s famous newsletter. If you have not heard about it, you should check it out. You might have ran across one of John’s books (I’ve read 2) or his newsletters, which are republished in many different places on the web. He usually writes about macroeconomics which is why I do not usually quote him on here. He writes in a clear, precise and easy to understand way about the US and the world economy and how it is evolving. While I rarely talk about his posts on here, it is a newsletter that I read as often as I can and one of the few that never leaves my inbox without a thorough reading.

So why am I discussing his newsletter today? Because in a change of subject, he published an interview about the future of content and how it impacts companies like Google, Apple and News Corp. I thought the vision seemed very accurate and it gives a good idea of how and why companies like Google, Apple and Microsoft are in a race not only to control our devices but also our living rooms, our mobile access. I did write about living in Apple world and I think that was a small  look into Apple’s strategy but it’s also clear that Google is waging a war and that Facebook is causing problems for both. Did the social network’s alliance with Microsoft help the company founded by Bill Gates get a seat back with the big guys? Many of these questions will be discussed in the coming weeks and months but I thought that anyone investing in the technology and/or media space should take a look at this critical piece of content. If ever you want to read more about John Mauldin, be sure to check his webpage, and yes his newsletters is free. You can take a look at his outside of the box newsletter, which always presents a different point of view on things here.

Apple, Google, NewsCorp and the Future of Content
Interview with Michael Whalen

In this issue of The Institutional Risk Analyst, we speak to Michael Whalen, [Emmy] award winning composer and new media observer about the outlook for the business of creating and delivering content.  Since graduating from Berklee College of Music, Michael has taught a business for music class that has saved thousands of young artists from making terrible mistakes with content and other contractual rights.  Think Frank Zappa and Warner Brothers.   And yes, Michael is IRA co-founder Chris Whalen’s younger brother.

The IRA: So Michael, let’s start with kudos for the call on iTunes years ago. You first gave your brother a heads up about Apple Computer’s (AAPL) move into music via iTunes a decade ago, correct?

Whalen: Thanks. Yes…back in 2000 – 2001, I saw that Apple was getting ready to take a monumental step by shifting its business away from just computers and software towards mobile devices. To see how big a deal this decision was, you have to travel back to that time… When people thought of downloadable music the first thing they thought of was Napster (remember them?) and to the general business community the idea of all entertainment being sold and distributed digitally through a SIMPLE platform was “risky” and truly visionary. The music business was all about CDs (still) and the traditional model of physical product. Interestingly, iPod was not first to market. The digital music players that did exist beforehand were clunky and big. In 2001, concepts such as iTunes and the iPod made it look like Steve Jobs and the management at AAPL were crazy or at least losing “confidence” in their core business. People asked with more than a tone of criticism: “why diversify”? “Has Microsoft (MSFT) beaten you”? Now 10 years later, their gamble looks like genius. It was…

The IRA: Indeed. How do you view the AAPL strategy going forward, especially with the apparent decision to let Droid handset take overall share? Is AAPL still well advised to keep proprietary control over the hardware and not allow third-party produces to make handsets that run the AAPL OS?  Click here ( ) to see IRA’s new digital widget for handsets.

Whalen: I think handicapping the handset/mobile device market with just a hardware conversation is short-sighted, frankly. In my opinion, the near-term future is all about content streaming. The profit margins in these handset devices is so small that staying in the game will be very tough if you are not already in it and buying your way into the market may not pay off because the margins might not cover the cost of entry unless you are hugely successful. For investors interested in AAPL, watch what they do with their huge new cloud-computing center in North Carolina. As already reported in the media, this facility is going to go far beyond simply turning iTunes into a streaming subscription service. AAPL is going to start to be very visibly aggressive with all that cash they have and this location is but a bellwether of other centers and a very interesting future that is unfolding.

The IRA: Do tell. So, to ask the same question from a different perspective, will AAPL push all content to all devices or just the iPhone/pod/pad? Maybe layers?  Your reply suggests that the hardware origin no longer matters, even for AAPL.

Whalen: Hardware only matters as a platform for content streaming and customized applications. The future is here right now: the iPad, iPhone and even the new Macbook Air have no hard drives…. they have flash drives which suggests that the data you need to operate the device can live on a flash drive or the data will be usable at the other end of a network someplace. AAPL has aggressively inserted “data pushing” into nearly every app now. So, from now – – look 24 months into the future when the mobile phone companies finally have their networks together here in the USA and we are talking about something ever more huge on the horizon: imagine making broadcast television and radio totally irrelevant – – even to captive audiences like commuters, which has been the life blood of radio. People will be able to stream any kind of content in any definition in real time -everywhere in the United States. Countries like Korea and Japan are years ahead of us in this technology. However, the USA is “entertainment thirsty” and on the move. The real question is how much will this new streaming content cost and where will the market balk when it is so used to getting so much content for free now.

The IRA: So are we talking about the end of proprietary channels and exclusivity, even for companies like AAPL? The Google (GOOG) sponsorship of Droid looks to us like a very smart way to essentially abscond with the relationships of the carriers. AAPL has pushed content onto PCs via iTunes. Will they also attempt to push content to ALL handsets or is their opportunity defined by the AAPL hardware and OS?

Whalen: No, I think AAPL’s days of dreaming that they will be the only hardware game in town are over…. They are crushing people with design and marketing now. However, in the last 12 months you can feel a change in the wind. Their stance in the media and in their marketing has shifted as well. They have learned that Droid is real and that iPhone will not dominate the market in terms of total share. They have blown open the tablet computing market with the iPad – but so many other devices are out and coming to market. So, yes, we’re talking about delivering content across all platforms.

The IRA: The IRA is now running on a new Droid 2 via Verizon (VZ). Lost the Blackberry and MSFT Outlook all on the same day. Free at last, free at last. OK, so let’s open the scope a bit and go back to our conversation last week about Fox, NBC, etc. If the handset is the means of receiving content, what happens to TV or even cable? Our friend Joe Costello on the thread reminded us over the weekend of the comment by Level Three to the Bloomberg News report that Comcast (CCS) is going to charge Netflix more for movies. Hello? Was the Comcast/NBC deal an astute way for General Electric (GE) to run away from a declining business?

Whalen: Yes. GE was brilliant in getting out of traditional television now. CCS doesn’t yet see that they were wooed by the memory of how profitable television once was. Those days are dwindling quickly. However, I see many TV execs puffing their chests saying how great the upfronts were in the Fall and how the shows they’re making are retaining market share. This is simply not true. Have you checked-in with those advertisers lately? The rush of eyeballs leaving TV is amazing. The data hasn’t yet caught-up to where the market is sprinting. You’ll see in the next 12 – 18 months very popular new content streaming directly from the servers of the people who made the show onto devices – – maybe they’ll use iTunes, FaceBook or even GOOG for aggregation and this new show will completely circumvent the traditional television structure for production, marketing and broadcast. Technology has caught up and the game has changed for TV. Said another way, the TV and film businesses are changing as radically now as the music business did (and continues to change) ten years ago. Consumers had to wait for the network bandwidth to catch up before the change in video & film product became feasible. Now it is… As for other TV outlets, you are going to see MUCH MORE leasing of broadcast space – a la “American Idol” or “Survivor”. Networks will be leasing the time (space) in “primetime” with certain financial overrides if a show is wildly popular, etc. It will be interesting to see if the FCC starts coming down on networks who are no longer standing by the programming on their digital bandwidth as theirs – but simply a tenant. Imagine a now future where broadcast TV is only truly valuable for live events, captive live programming like “Idol” and sports. The networks don’t want to tell you that this future is here NOW. The research data will be here soon – but investors waiting for the eyeballs to be counted before making decisions will be late to the next party.

The IRA: We used to have discussions with Alan Schwartz and the technology bankers at Bear, Stearns & Co. years ago about whether the pipe or the content ruled the model. Now we see that the pipe is becoming an infinite lake whereon we must all learn to differentiate our brand in a sea of brands, brands that have global potential reach as you said. In terms of content delivery, is this just taking our TVs with us in a mobile sense or is it more transformative? Look at Twitter as the extension of AIM on a global scale, but is there a global peer-to-peer network here?

Whalen: There are two ways to look at the end of television as we have known it for 70 years…. The first is that mobile devices killed television because Americans are dealing with life on the run. The traditional picture of the family all gathered with their dinners together in the living to watch an evening’s entertainment does NOT happen. If you’re not working in TV like me, you may not get what a big deal this is. Television producers are scrambling to change EVERY part of how television is created for an audience whose life is literally on the run.

The IRA: Yes, but can you run, talk and text at the same time? To us, humans are no more able to multitask than computers. Is this really productive? Or are we all becoming insane thanks to the manifold “benefits” of technology?

Whalen: Here’s two examples: cameramen are changing shots to work for a 3″ screen by reframing distant shots that might look weird on a portable device to use more close-up and medium shots and sound is being adjusted to work for the dynamic limitation of headphones. We have already started seeing two versions of shows – one for TV and one for your handset. This combined with shrinking dollars for production and almost ridiculous competition – it’s true that the pipe that is now a lake that is turning into a ocean – very, very fast. Secondly, the TV at home and the home computer are merging – literally. The new GOOG TV product is a pretty good structure for managing the expectations and simplicity needed for a broad-audience. As a music professional, I like the Sony (SNE) Internet TV. It’s pretty slick for hardware but it’s just a stop on the way to a device that must transform itself from regular TV, high def, a gaming device, straight internet and wirelessly interface with all our mobile stuff at once. I have found it very interesting that AAPL hasn’t jumped into this fray given their “digital home” strategy. I think Steve Jobs is waiting for the market to sort itself out before he brings something to market or perhaps I am right and the game on the hardware war is over…

The IRA: Correct, AAPL and GOOG clearly have the advantage of incumbency here. But back to your earlier point, so all of the content creators basically become syndication platforms for all of the “delivery devices” regardless of what OS they are running? And does this help artists, authors and other content creators economically? Is this the final epitaph for the “studio model”?

Whalen: Correct… OS is no longer a marketplace “battlefield” how it was 5 or 10 years ago and the whole notion of what operating system your computer is running has been pushed to the background just as handsets have just been pushed to the background as we discussed before… Therefore – not surprisingly, I believe that we are all content creators in the future we are walking into. I don’t mean making videos on YouTube or Vimeo – – I mean that content itself will be made by the audience and the “artists” of our new future will be there to provide inspiration, elements and focus. In other words, all artists will be brands that will have their audiences doing the work of executing content that is inspired by the brand itself.

The IRA: So we are all just virtual brands as in The Matrix?

Whalen: Yes. It will be interesting how this all gets monetized. Just as J-Lo has her name on a perfume now or Madonna opens a chain of Health Clubs (not kidding) – this is just the beginning of the fusion of marketing – licensing – brand imaging – content and distribution. It will test the existing, IMHO ridiculous, copyright laws we have and to the wall. Don’t believe me? OK… Well, the future of content/brand creation and licensing is going to shock you even in a few years. That said, I am not sure how all this “helps” artists and creators/owners of content in the short or long terms. One of things I have been saying in my lectures on music business, in my writings and seminars is that this whole digital wave that is breaking is about resetting expectations. We have deluded ourselves for 75 years about what artists, creative people and copyright owners should and can make financially.

The IRA: You said the other day that you see the golden age of American music and film, in terms of the position of artists, going back to the future to the Middle Ages. Could you elaborate?

Whalen: Frankly, I think we’re going back to the 19th century in terms of the “status” of artists. They’ll be figureheads. Imagine: like Paris or Vienna of the 1900s, we’ll have wealthy patrons and small clutches of people who support the art of “real” artists. In this environment, the work we will try to sell is simply a loss leader and an inducement for us to perform or create a “custom” song, TV show or film… Yup, it’s all here now… What will be really interesting is what happens next… I am not pretending to be the “Grim Reaper” but I think the record business, the film studio system and the television networks are over as we think we know them. I think there is a new business emerging in gathering creative investment, content and creative marketing…. It will be in a structure that’s more akin to a stock market than the traditional structure we’ve seen for artistic and creative content and the platform for it will be the digital ocean we have already discussed. Based on the “buzz”, there will be a “futures” market and the idea is commoditized and funded in days – not months or years. For decades, most record companies and networks have been little more than funding sources for artists – now the truly visionary artist won’t even need these ancient businesses – the market itself will generate everything it needs to create content efficiently. It’s a little overwhelming the change that is here now vs. five years ago and that will be coming in torrents in the next few years. Amazing.

The IRA: Likewise it is interesting to see the way that the service providers, Verizon for example, and the handset maker, Motorola (MOT) and HTC, in the case of the Droids, are losing leverage to the GOOG’s of the world. The entire Droid 2 is GOOG enabled. You don’t even need to install the Moto drivers. And VZ pathetically tries to recapture eyeballs via a media player that is also irrelevant. How does AAPL avoid marginalization? Or is that the wrong question?

Whalen: It’s a great question and it’s a clue to AAPL’s strategy in the near term. iTunes is but a platform and you can see that its already outgrown itself and will transform into something new soon… So, the next step in our “digital ocean” conversation is either the savvy investor interested in media will be controlling content or they will try owning the content. So, we’ve already discussed that owning copyrights is probably irrelevant in the long term – therefore, the future is all about owning the rivers that feed the “ocean” of content. Said another way, Wall Street really needs to get that the future of media is not about hardware or even the proprietary OS… I know we all get enamored of gadgets and thingies. The market is about to make all of that history.

The IRA: We’ve heard that before. How do you see the delivery/payment relationship changing?

Whalen: Well, you can assert that AAPL’s strategy and that spooky HUGE building in North Carolina has something to do with controlling tracts of copyrights without the need of OWNING them. This of course begs the question: how? What if iTunes or whatever AAPL calls their new streaming service is broken into TWO parts – the actual delivery and streaming of the programs, etc. and on the other side – – the administration of the copyrights in the digital realm including collecting fees and licenses from OTHER PLATFORMS. This would be HUGE…. revolutionary and it hasn’t happened on this scale since Edison tried to own the whole content “jungle” himself at the turn of the 20th century. Mr. Edison didn’t have to deal with 17 companies who will be screaming “antitrust, antitrust” when AAPL wheels this out… In this possible future, the fusion will be complete and unlike any paradigm that we have ever seen.

The IRA: Exactly. You have different models growing in this jungle. Is the AAPL path a fully integrated model? Does Jobs have to have exclusive control over content to monetize his audience? For example, to subscribe to my friend Tom Keene at Bloomberg, you must use iTunes… Do you like the AAPL path or Goog? Or is it too soon to tell? Does Facebook triumph?  We have friends who think Facebook eats everyone’s traffic.

Whalen: I think everyone is waiting for a GOOG – AAPL face off. It’s not going to happen… AAPL can BUY GOOG. In the end, I see the directions of these companies being very different. They have crossover now…. The mobile ad marketplace is particularly interesting area of crossover. But these two companies will have less and less crossover over the next few years. In this new “jungle”, some of old players must be removed (bought) or merged and sold off. Isn’t it amazing what is happening to MSFT? They are now a gaming company and they are specializing in mobile Internet products for cars. Wow. MSFT didn’t play the whole OS thing or software thing very cleverly – did they? But I really do think it’s too soon to tell. Facebook is valuable now to people – – I think the next 6 months will be very telling. Facebook is still a new “toy” to many. They will have to figure out how to keep the page relevant as the river of content that we’ve been discussing steals eyeballs… Maybe the river flows through Facebook?  AAPL and Facebook have been talking and they NEED each other. AAPL’s Ping social network is a non-starter and Facebook has no real access to content. We’ll see..

The IRA: So where does this leave Ruppert Murdoch and NewsCorp (NWS)? And you mentioned the impending changes at the New York Times web site to a paywall model. Our friend Felix Salmon at Reuters has been following the transition with his usual attention.

Whalen: I think Ruppert has to make a major move soon. Hulu is not the move. NWS is OK – now, say the next 12 – 24 months. However, so much of their content is delivered on old formats (TV, newspapers, magazines, Film Studio). He doesn’t have his own platform now that will be attracting the audience that would feed on this content. NWS might have more time in some foreign markets – but in the US, Europe and Japan – the content river or lake as you suggested is getting ready to wash his old proprietary distribution empire away. Mr. Murdock might need to sell pieces to concentrate on his “core” – but the real players have been getting ready for this game for 3 – 5 years. Unless he’s about to unveil some secret strategy which would have been leaked by now – he will have to pay a premium to be at this table with GOOG and AAPL. That said, the NYT is about to try to MAKE their digital content a tiered paid subscription model with some free views. They must find a way to monetize their sinking ship. But frankly, I think the idea is going to crater. No one wants to PAY for text – and a little video. Even from the New York Times. Their public arrogance as “the world’s newspaper” might be covering a private fear for what happens when this “hail Mary pass” doesn’t pan out. They have so much debt and their revenues are shrinking. Maybe GOOG or AAPL buys them? They don’t NEED to – newspapers don’t hold the allure or relevance they once did. Also, in the “fusion” model I outlined before – news will be delivered in a completely new way. It no longer needs to be “presented” by a credible looking news figure. Instead, news will be raw and the “commentary” will be generated by the audience themselves. Imagine the kind of stuff that people write as comments on video clips on YouTube or Facebook now but taken to the 10th power. The audience of the near future doesn’t want to be walked through their news. Here’s the new context for the new news: 1st person point of view as personal experience. Maybe you could say the news as “video game”? (laughs) Not quite… The NYTs has had a successful career as a shaper of stories – I think that is less important now and will go away quickly. Honestly, I think anyone in the newspaper business should be on Craig’s List looking for a new gig.

The IRA: So, neither AAPL nor GOOG wants to own content. Fox has been spending a lot of $$ to create general, business content focused on the web, but they are competing for eyeballs with all of the other “islands” of content. Is NewsCorp, NYT essentially in the same boat as the artists your described?

Whalen: That’s an interesting comparison. I think the big adjustment for these massive media companies is that I as a content provider will be EQUAL to them in this new paradigm. Already, my content can draw as many eyeballs as theirs. Regular people have videos on YouTube now that have tens of millions of views. I have a concept that I call “bendable content”. In the new “ocean” of content that we will all swim in soon – all content will be “bendable”. Bendable means that all media can be played on any device, anywhere, anytime. It also means that that the material can be reordered, edited, manipulated and re-contextualized. Yes, someone at the US Copyright office is weeping now. If you have a sophisticated computer, you can do all this manipulation NOW. In this new future, you’ll be able to do this on a handset or a tablet computer and get the content back OUT there – wherever that is! How do you monetize this? We’ll see. Investors may have to stop asking that question like there will always be a transaction out there that can be tracked. In the new media ocean – part of the service that you are pay for monthly will be reconstructing content.

The IRA: This returns to our question of the peer-to-peer dynamic, almost a global Napster for all content and free.

Whalen: Yes my brother. All of this kind of talk scares the crap of the TV networks and Film studios who have lasted so long by keeping their grip on content. In the new future – that conversation is OVER because the audience is demanding now that it be over. The future will simply be created by the people for the people – it’s nice, isn’t it? It’s been by controlling content that’s been keeping the “big” boys relevant – I’m surprised that they have lasted this long as purveyors to the public with their content and programming and news. The slow economy has slowed down our sprinting towards this future and finishing the work of building the networks that will carry all of this content – especially the wireless networks. But these walls are tumbling down now. What I like about the possible future we are talking about is how it’s a VALUE conversation versus a captive one or a proprietary one. The Internet “attitude” has changed the rules for all these players by making content king and choice the other important metric. That said, the digital administration fence that Steve Jobs (or someone able to capture the digital ocean) might throw around “lake” of content may have us move from one kind on controlled experience to another… Will there be a toll taker in this future? Probably… It might even have an AAPL logo on it. We’ll find out very soon

The IRA: Thanks Michael.

10 investing lessons from the movie “The Fighter”

By: ispeculatornew | Date posted: 01.21.2011 (5:00 am)

If you have not seen “The Fighter”, a movie released a couple of months ago, I personally think it’s well worth watching. It’s based off of the true story of Micky Ward, a boxer that won a WBU title despite a very unlikely route. It’s a movie about boxing but it’s also about life and as almost anything, it can relate to investing as well. Here are a few of the lessons from the movie. You can also see the preview at the bottom of this post!

#1If it looks too easy, it usually is

When Micky had a last minute opponent change, he was told that his guy was fresh off of the couch, he ended up going for it and got destroyed.

=>Do not invest in something that looks like a no lose situation – there is a catch if the others are staying on the sidelines. Stocks that certain to double within a few months usually are too good to be true.

#2-Face reality

When Micky was looking like his career was going to end way too early, it would have been very easy for him to keep on trying the same old things, instead he took the time to think about how things were going. He ended up trying a whole new approach and things turned around

=>When you are on a streak of bad trades, it becomes easy to start trying to make up for it, and that is when things get dangerous. Instead, take the time to look back at what is working and what isn’t. There’s nothing wrong with being out of the market for some time.

#3-Give it your best effort

After giving half efforts with a half team and half dedication, Micky ended up looking at an almost over career. He finally was able to turn things over by dedicating himself like never before

=>In finances as in life, there is no point in trying to do things with a half effort. If you did not have proper time to look at a company or an investment, stay away until you do. In the same way, if you are trying to build a passive income portfolio without a proper plan, there really is no point.

#4-Start small, get your confidence up

When Micky restarted, he took things slow, with a small fight that would help him regain his confidence.

=>If you still have doubts that a huge part of trading is mental, then you are missing out big time. When you had a string of bad trades or have less confidence, start off slow, with smaller investments, smaller trades, etc. As times goes by, you will be able to get back in the game.

#5-Remember the basics

When he was facing Alfonso Sanchez, Micky struggled big time as he tried to follow a plan that was not his. He got completely dominated for the entire fight but in the end, he got back to the basics and what had worked for him in the past, he ended up winning what was seen as a miracle.

=>As much as you

#6-Have some stability outside of investing

Micky started winning once he had a stable and reliable team with him, not just for training but for his life in general. A big part of course was his girlfriend Charlene (Amy Adams). Not only his boxing but his entire life was a mess until he got his life in order

=> In investing as in boxing or anything else in life, it’s difficult to manage if you do not have everything else in order. Surround yourself by a loved one if possible, by friends and your family, it will make you mentally stronger and thus a better trader.

#7-It’s never too late

Micky started off his boxing career early but after all off his early struggles with his brother, he was finished to almost every boxing analyst. But he persevered and was able to turn things around

=> In investing as in anything else, it’s never too late. Some say that if you do not start investing in your twenties or thirties, you will never start early enough. I did write that you could start a passive income portfolio with $5000 and often even less. But you must start as soon as possible, do not delay by one more day.

#8-Trust the right people but only to a limit

Micky had all of his early struggles because of a very questionable entourage, he was not asking himself the right questions

=>Bernie Madoff and many others are people that ended up screwing thousands of investors. You cannot put most of the blame on those investors and many did not have any way of knowing what was happening. But smart investors should diversify their holdings and pay enough attention to limit the probabilities of such events taking place.

#9-It’s not about your opponent, it’s about yourself

Micky’s progress and career took an incredible turn not because of his opponents but because of his own dedication, discipline and training. He was also himself in the ring.

=>We are all surrounded by friends and family but also strangers on tv and in the papers. They all have their own unique situation, their own investments & savings. It’s not about what they have and what they will end up with. We each have different investor profiles and should invest according to our own objectives, risk profiles, etc. It’s important to know yourself, your plan and save & invest according to those.


Micky’s title match was against an incredible opponent and to say that it didn’t always look good is a major understatement. He fought with heart, courage but mostly, he kept working on the plan and did not give up, trying again and again until it ended up working.

=>No journey is a straight line. You start somewhere with a destination in mind and sometimes you get off the track. Do not give up, stick to your plan. Save as much as you can, invest as well as you can and in then end you will make it!

Another sign that Amazon (AMZN) is the top ecommerce player

By: ispeculatornew | Date posted: 01.20.2011 (5:00 am)

Despite being somewhat critical of Amazon (AMZN) last year, I did turn my view around, mostly concerning Amazon’s great business model but even the Kindle seemed like a better business than I had initially expected. That being said, I’m also increasingly impressed by Amazon’s general digital strategy. They have gone from one of the two top physical retailers (with Ebay) to the overall leader thanks to many digital initiatives:

Mobile Apps

Amazon quickly understood the power of mobile and while Ebay has been working hard, there is no doubt that Jeff Bezos helped Amazon jump to the head of the pack. For Apple (AAPL) users, Amazon now offers different apps such as the Kindle, but is also working on many others that have helped the company remain at the top of the pack. Many Ipad users such as myself have been frequent users of the Kindle app to purchase books and I expect many more products to be offered over time.

On Google’s (GOOG) Android, Amazon is poised to have an even bigger presence. The company has opened its own App store where it can sell its own apps but also those of any other developer. Because of Amazon’s huge brand presence and the open nature of Android, this could very well become one if not the top app store for Android, which is quickly becoming the top smartphone operating system. This could result in significant dollars over time.

Yesterday’s huge deal

Groupon was discussed recently as it became a potential target for Google (GOOG) and we had actually supported the move and said we would do so if we were appointed as Google CEO. Amazon did make the brilliant decision to get involved in the market by taking a stake in “LivingSocial”, what many consider to be a “Groupon Clone”, but a much smaller one of course. With hundreds of similar websites, it is increasingly difficult to get users to visit the website and because of Groupon’s impressive work in growing at an incredible pace, catching up seems almost impossible in the near term.

But yesterday, Amazon helped “LivingSocial” take drastic action that could change the landscape and perspectives. How did it do so? Quite simple… Amazon let LivingSocial sell a coupon for its main store,

The offer? Buy a $20 coupon for $10.

Since Amazon has such a broad customer range, the offer was an interesting one for millions. And millions came. The record for such a deal used to be held by Groupon with its $11 million sales on Gap store coupons. To beat that record seemed optimistic by any means but it ended up being beyond Amazon and LivingSocial’s wildest dreams. The 24 hours offering gained traction very quickly as users signed up, let their friends, family and co-workers know.

The end result?

LivingSocial crushed Groupon’s record as it sold 1.5 million coupons, grossing $15 million in sales. That of course will mean customers will receive $30 million in merchandise from Amazon. I wish I had thought about a similar initiative in my post about being Amazon’s CEO Jeff Bezos for a year. I shop online with Amazon coupons and would never have thought about such a clever offer that would attract millions of people.

Why is it so brilliant to give away $15 million?

First, from Amazon’s perspective, it was basically able to get new and existing clients to put up money to get a coupon, to promote, discuss and share about the brand. Few of those customers will buy for only 20$ and chances are that the orders will be much bigger. Will the company make profits out of this promotion? Probably not. But even if it ended up costing a few million dollars, that would be marketing dollars well spend in a social media campaign that could be the first of many.

The game changer

In 24 hours, LivingSocial went from a small Groupon threat to a website that has just gained millions of new customers that will be willing to give it a shot against Groupon. Is it a given that they will stay? No, of course not. But even getting a few million emails, that can buy or share these offers on a daily basis is a huge deal for LivingSocial.

As well,  being an independant company makes it much more difficult for Groupon to compete with a similar offer. Amazon has alliances with many huge companies and offering a coupon to could be only the first step. I would bet that in one day, LivingSocial’s actual value might have doubled and simply through that investment, yesterday’s offering was an incredible success.

Disclosure: Long Amazon (AMZN)

Dividend matchup: McDonald’s Corp (MCD) vs Yum! Brands (YUM)

By: ispeculatornew | Date posted: 01.19.2011 (5:00 am)

Not that we want to focus on things that are bad for you, after looking at the dividend match up between Pepsi (PEP) and Coca-Cola (KO) but this time we go directly towards the two leading fast food chains; the one and only McDonald’s (MCD), one if not the most known brand in the world and Yum Brands (YUM), a much lesser known name simply because the company is not the main brand as you would usually know it by its main franchises; Pizza Hut, Kentucky Fried Chicken and Taco Bell among others. Both names are two formidable dividend payers and companies that have been able to keep up growth in their dividend payments. We will of course be doing the analysis following the 20 things that we look at when judging dividend stocks.

Without further wait, let’s get down to the match up:

Dividend Metrics:

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Please note that the change in MCD dividend is not a huge drop but rather a change from a quarterly to a yearly dividend.

As mentioned above, the MCD chart seems to indicate a rapid growth followed by a drop, but rather it is simply a change from a quarterly payment, to a yearly and then back to quarterly. MCD’s dividend growth has actually been very impressive over the years. That being said, despite a smaller dividend yield, Yum has actually been on a tear in recent years as it continues to increase dividends at a quicker pace. It’s actually very close but I will give the edge to McDonald’s which pays out almost 3% and has been increasing dividends quickly for over 10 years

Business Metrics

[table “235” not found /]

Again, this is very very close given the fact that both companies have steady and reasonable growth. In the end, I do give a slight edge to YUM because of its faster sales growth, its brand diversification and its lower payout ratio which gives the company more latitude to increase payouts in the near to medium term.

Stock Metrics

[table “236” not found /]

It is very close, no doubt about it, a slight edge goes to YUM in terms of its trends analysis but otherwise, very tight

Industry and Overall Fit

No doubt, these companies are very similar and while McDonald’s has a much more international exposure, I think they are both diversified enough to keep up the growth for the long term. They would also be great fit in almost any passive income portfolio.

My Winner?

Personally, I would go with Yum Brands (YUM), even though both names would make great additions. I simply think that YUM will be able to increase its dividend payments more quickly than McDonald’s in the long term. Do you agree?

Disclosure: No positions on either of these stocks

Is Apple (AAPL) doomed without Steve Jobs?

By: ispeculatornew | Date posted: 01.18.2011 (5:00 am)

Today you will hear about Apple’s problems and chances are that the company’s stock will suffer a significant loss (and so will my current trade on Apple). How do I know? No I don’t have a crystal ball and did not consult a psychic of any kind. But if you have been anywhere the internet or a news media in the recent hours, you know that Steve Jobs, Apple’s CEO announced that he would be taking a leave of absence for the second time because of health problems. It remains unclear how serious the issue is and how long Jobs will miss and out of respect for him, we will restrain from speculating over what the issue is exactly. Suffice to say that he will be out for some time.

The “Jobs Premium”

It’s not a surprise to see the stock suffer losses, it’s unfortunately not the first time that shareholders have lost money as scared investors sell their shares. How much are we talking about here? No, it’s not just a few dollars. While the announcement was made in the US on Monday, the markets were closed because of Martin Luther King. However, Apple also trades overseas and the stock lost 8% of its value on German stock exchanges. 8%… is that big? Just to put it into context, 8% represents over $25 billion…!

Is Steve Jobs worth $25 Billion?

The truth is that no company has as much of its value dependent on its founder. HP (HPQ) suffered a big loss last year when Mark Huard was ousted from the company but it doesn’t even come close to Apple’s situation. If $25 billion is wiped out because Steve Jobs will not be running day to day operations for some time, imagine if he could not help at all, was seriously ill or even worse? It’s easy to imagine the stock continuing to drop much much lower if things got worse. Why? There are so many different reasons but Jobs is seen as the force behind the return from the dead of Apple over a decade ago as he led the force that saw the different Ipod models, the Iphone, new Mac lines and the recently launched Ipad. All of these products have been wildly successful but also have been seen as extensions of Jobs’ innovative mind and his vision of the market not for what it is but for what it can be. Is he the only person capable of running day to day operations? No, of course not. And many, including myself have said what they would do if they were CEO for some time.

There is no way to replace Jobs though…

But it does not seem like any one could even have a shot at replacing Jobs. The founder inspires workers, executives and even customers. How can you not admire a man who does what he exceptional at, working for a salary of 1$ per year, all for the sake of making Apple the best at what it does. Steve Jobs also has the power and connections to take Apple in whatever direction he deems necessary and that has always been the right one in recent years as he was the captain that led Apple to the very top of the tech space. No other tech executive (or any other executive for that matter) is as important to a company as Jobs is to Apple

No short term impact

That being said, it is important to know that Steve Jobs’ replacement, Tim Cook, will be more than able to take Apple in the coming months for its upcoming Ipad2 and Iphone5 launches in the coming months. Those will be wildly successful and will generate even more cash for the already rich Apple. The upcoming arrival of the Iphone on Verizon’s network will be a great day for Apple shareholders and give the company even more market share and power in the smart phone market.

But what happens next?

The bigger issue though is what comes next. It’s unclear what Apple’s plans for the next few years are but Tim Cook is likely not ready to take Apple in risky directions as Steve Jobs has been so good at doing. Can Apple remain the leader if it loses a lot of its innovation?

Let’s not panic just yet

The reality is that while we do not know when Steve Jobs will return, nothing indicates that he will not be back (apart from rumors which were expected) and it’s critical for shareholders and Apple employees & customers to remain calm and keep their hopes high. Steve Jobs will be back and will continue to assist current management in taking the company in the right direction….

Disclosure: Long Apple (AAPL)